UK companies cast envious eyes abroad

UK companies cast envious eyes abroad

The growing dissatisfaction with the UK’s tax regime raises questions about how easy it is for companies to set up elsewhere if they decide to exit the UK

It has not been a good month for the reputation of the UK corporate tax
system. First, Lloyd’s insurer Hiscox announced it was leaving for the tax
warmth of Bermuda. Then HSBC said it was considering quitting the UK over tax.
The final straw came with the Investment
Management Association
(IMA) reporting that funds were staying away from the
UK because of tax complexity.

The growing dissatisfaction with the UK’s tax regime raises questions about
how easy it is for companies to set up elsewhere if they decide to exit the UK.

The decision on where to domicile a company is also influenced by factors
such as stable political environment, acceptability to investors and established
infrastructure.

But from a tax point of view, Bill Dodwell, corporate tax partner at
Deloitte, says it is relatively easy to domicile in another country.

‘Strictly speaking, a company never leaves the UK,’ Dodwell says. ‘What
happens is that a business will establish an overseas holding company, and then
that company will buy the UK one. There is no tax charge and it is difficult for
the UK to stop.’

However, it is much more difficult for investment funds domiciled here to
uproot and move abroad, even though many newly established funds have shunned
the UK in favour of Ireland and Luxembourg.

Research compiled
by KPMG for the IMA
found that funds domiciled in Luxembourg had outgrown the UK ten-fold over the
past decade, while Ireland had grown twice as fast as the UK in the same period.

An IMA spokeswoman says that although new investment funds are pouring into
other territories, it is difficult for UK-based funds to follow the trend.

‘Changing the domicile of a fund requires investor approval,’ she says. ‘A
fund will have to undertake a massive information campaign if it wants to
relocate.’

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